Revision of the PEM Convention on Rules of Origin Textiles TAXUD/ /14 20 th PEM Working Group Brussels, 22 May 2014 Guillaume DOREY DG Taxation and Customs Union TAXUD B3 – Trade facilitation, Rules of Origin and International coordination Europe and neighbouring countries

Textile – origin provisions 1. Textile in rules of origin – State of play 2. Position of Contracting Parties 3. Other ways of relaxations

1. Textile in rules of origin – State of play List rules in the current PEM Tolerances Cumulation (special provisions for certain areas)

List rules – current PEM rules Based on 'double-transformation'  two significant processes of production undergone in PEM Members (provide higher value added) Complementary nature and integrated production chain across pan-Euro-Med area Double transformation generated a number of benefits for PEM area due to cumulation among PEM partners Estimates: about 5 mio textiles and clothing workers employed throughout the area 1. State of play

- extrusion of man-made fibers accompanies by spinning for synthetic yarns, or - spinning of natural or man-made fibers accompanies by weaving, or -a substantial printing operation accompanies with two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47.5% Textiles (examples) Clothing (examples) -weaving accompanied by making–up (including cutting), or -making–up preceded by printing accompanied by at least of two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47.5% (e.g. grey fabrics) List rules – current PEM rules 1. State of play

Tolerances – current PEM rules Specific tolerances expressed in Introductory notes: Note 4 (definitions) Note 5 (tolerance of 10% in weight for basic textile materials + definition of basic textile materials) Note 6 (tolerance for textile materials of 8 % EXW price providing a CTH with the exception of linings and interlinings + tolerance for non-textile materials) 1. State of play

Cumulation – current PEM rules Cumulation for textile: full cumulation Areas of full cumulation: EEA (European Economic Area – EU, IS, LI, NO) MA – TN – EU MA – TN – TR TN – EFTA (CH, IS, LI, NO) DZ – EU 1. State of play

List rule for shirts: “Manufacture from yarn” Full cumulation EEA List rule for fabrics: “Manufacture from fibres” Full cumulation Takes into account the different working stages 1- weaving from yarns 2- making Pakistan yarn Iceland weaving Supplier's declaration for non-originating fabrics Norway EUR.1 or Invoice declaration PO = EEA (EU) HS State of play Example

New challenges in textile and clothing sector New business and industrial reality in the sector Increasingly complex supply chains/diversity of production processes Changing production techniques and production patterns (e.g. finishing sector with innovative technologies ) Limited supply of originating fibres/yarns in terms of needed types, quantities, qualities Fierce competition from many Asian countries

2. Positions of PEM partners To keep the current rules (with relaxations or not) Double transformation as a principle but with options Single transformation (with or without conditions)

- extrusion of man-made fibers accompanies by spinning for synthetic yarns, or - spinning of natural or man-made fibers accompanies by weaving, or -a substantial printing operation accompanies with two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47.5% [or without now] textiles clothing -weaving accompanied by making–up (including cutting), or -making–up preceded by printing accompanied by at least of two preparatory or finishing operations (such as scouring, bleaching, mercerising, heat setting, raising, calendaring, shrink resistance processing, permament finishing, decatising, impregnating, mending and burling), conditioned to a value-added criteria for the incorporated non PEM input – 47.5% (e.g. grey fabrics) List rules – current PEM rules 2. Positions

Textile (examples merging different positions) - New wording with key working processes (options) for both yarn or fabric: - Extrusion + spinning/weaving - Extrusion + twisting/weaving - Twisting or/combined with gimping/weaving - Yarn dyeing + weaving - Weaving + one specific operation (printing, dyeing, coating…) - Printing (as standalone operation + value added criteria) - Dyeing + 2 finishing operations) + value added criteria - Dyeing (as standalone operation) Clothing (examples merging different positions) -New wording with key working processes for clothing -weaving accompanied by making–up (including cutting) -making–up preceded by printing (as standalone operation + value added criteria) -Dyeing + making-up -Specific rules for some products (ex: denim) List rules – Relaxations by certain partners 2. Positions

- Single transformation based on: - CTH - Change from any heading textiles clothing -Single transformation based on: -CTH -Change from any heading -30 % minimum of originating added-value List rules – Relaxations by certain partners 2. Positions

Analysis chapter by chapter 2. Positions Chapters 50 to 53 Chapters 54 and 55 Chapters 56, 57, 58, 59 Chapters 60 and 61 Chapter 62 Example: Chapters 50, 51, 52, 53 (Silk, Wool, Cotton, Other vegetable textile) FabricsPEMChange in wording + options CTH / Change from any heading + dyeing

Chapters 50 to 53 Chapters 50, 51, 52, 53 (Silk, Wool, Cotton, Other vegetable textile) Chapter rule + Fibres PEM (CTH)Change from any heading YarnsPEMWording change + options CTH / Change from any heading FabricsPEMWording change + options CTH / Change from any heading + dyeing 2. Positions + ex 5003 (silk waste) with special rule needed?

Chapters 54 and 55 Chapters 54 and 55 (man-made, synthetics textile) Fibres (chapter 55 only) PEMCTHChange from any heading YarnsPEMWording change + options CTH / Change from any heading FabricsPEMWording change + options CTH / Change from any heading + dyeing 2. Positions

Chapter 56 Wadding, felt and non-wovens (ouates, feutres et non- tissés) + cordage and cables Chapter rule PEM CTHChange from any heading 5601Wording change + options CTH / Change from any heading 5602PEMWording change + options CTH / Change from any heading 5603Specific rules for non-woven products + by needle bunch 5604PEMWording change + options 5605PEMWording change + options 5606PEMWording change + options CTH / Change from any heading 2. Positions Chapter 56

2. Positions Chapter 57 Chapter 57 (carpets and textile floor coverings) Of needleloom felt PEM Wording change + options CTH / Change from any heading Of other felt PEM other PEM

Chapter Positions Chapter 58 (special fabrics – woven, tufted textile, tapestries…) Chapter rulePEMWording change + options CTH / Change from any heading + dyeing 5805 (tapestries) PEM (CTH) Change from any heading 5810 (embroidery) PEMWording changeCTH / Change from any heading

Chapter Positions Chapter 59 (textile fabrics – impregnated, coated, or laminated + textile articles for industrial use) 5901PEMWording change + options CTH / Change from any heading 5902PEMWording changeCTH / Change from any heading 5903PEMWording change + options CTH / Change from any heading + dyeing 5904PEMWording changeCTH / Change from any heading 5905PEMWording change + options CTH / Change from any heading + dyeing

2. Positions Chapter 59 (textile fabrics – impregnated, coated, or laminated + textile articles for industrial use) 5906PEMWording change + options CTH / Change from any heading 5907PEMWording change + options CTH / Change from any heading + dyeing 5908PEM (CTH)Change from any heading PEMWording change + options CTH / Change from any heading Chapter 59

Chapters 60 and Positions Chapters 60 and 61 (knitted or crocheted fabrics and clothing) Chapter rule 60PEMWording change + options CTH / Change from any heading Chapter rule 61PEMWording change + dyeing with added- value CTH (or single transformation) or 30% of originating added-value Proposition of chaging the wording of « other » by « other (fully- finished knitting or knitted to shape) »

Chapter Positions Chapter 62 (Articles of apparel and clothing accessories not knitted or crocheted) Chapter rulePEMWording change + options CTH (single transformation) or 30% of originating added-value + dyeing Ex 6202 Ex 6204 Ex 6206 Ex 6209 Ex 6211 PEMWording change + options (based on unembroidered fabric) CTH (single transformation[+dyeing]) or 30% of originating added-value Ex 6201 Ex 6202 Ex 6203 Ex 6204 Ex 6205 Ex 6206 Ex 6209 Ex 6211 Specific rule for denim Manufacture from yarn or Making-up followed by a stonewashed operation provided that the value of all the materials used does not exceed 40% of the EXW price of the product Manufacture from unbleached fabrics or Making-up followed by a stonewashed operation provided that the value of all the materials used does not exceed 40% of the EXW price of the product

Chapter Positions Chapter 62 (Articles of apparel and clothing accessories not knitted or crocheted) Ex 6210 Ex 6216 PEMWording change + options CTH (single transformation[+dyeing]) or 30% of originating added-value PEMWording change + options (printing + based on unembroidered fabric) CTH (single transformation[+dyeing]) or 30% of originating added-value +dyeing 6217PEMChange in wordingCTH (single transformation[+dyeing]) or 30% of originating added-value

2. Positions Current PEM Position 1 Status quo Position 2 Double transformation with options Position 3 Single transformation (with options or not) ex Chapter 62Articles of apparel and clothing accessories, not knitted or crocheted; except for: Manufacture from yarn PEM Rule to be kept Weaving combined with making-up or Making-up preceded by Printing (as standalone operation) or Making-up preceded by Printing (as standalone operation) or by Dyeing (as standalone operation) Manufacture from fabric (+ dyeing) Or Manufacture from materials of any heading, except that of the product Or Manufacture in which the value of all the materials used does not exceed 70% of the ex-works price of the product Chapter 62

2. Positions Chapter 63 Chapter 63 (other made-up textile articles) Chapter rulePEM30% of originating added- value 6301 to 6304 PEMWording changeCTH or 30% of originating added-value Manufacture from unembroidered fabric 6305PEMWording changeCTH or 30% of originating added-value 6306PEMWording change + option for non woven process CTH or 30% of originating added-value 6307PEMCTH or 30% of originating added-value 6308PEMCTH or 30% of originating added-value

3. Other Ways of Relaxation Modernization of rules for textile may go through different approaches: List rules Tolerance Cumulation

3. Relaxations Tolerance (general provisions and Introductory notes) (see presentation on open questions) Article 5(1) – General tolerance Introductory notes (Notes [4], [5] and [6]) Article 13 – provision on Duty Drawback Article 14 – Principle of territoriality

Tolerance Article 5(1) – General tolerance State of play [15%] of the ex-works price → all other products except Ch → specific tolerances (Introductory notes 5 and 6) Discussion tolerances to be increased to the same extent and/or remove exclusion of textiles in general ex-works price tolerance 3. Relaxations

Tolerance Introductory notes (see document TAXUD/ /14) Note [5] (definitions + printing and printing as standalone operation) Note [6.1] (tolerance of 10% in weight for basic textile materials + definition of basic textile materials) Note [7.1] (tolerance for textile materials of 8 % EXW price providing a CTH with the exception of linings and interlinings + tolerance for non-textile materials) 3. Relaxations

Article 13 – provision on Duty Drawback See working document TAXUD/ /14 Discussion CPs are invited to express their views on the principle and the potential impact Tolerance 3. Relaxations

Article 14 – Principle of territoriality Provision Working or processing outside the exporting CP can be disregarded' if added value ≤ [10%] of the ex-works price of the end-product Not allowed for products of Ch Discussion CPs are invited to express their views on the principle and the potential impact Tolerance 3. Relaxations

Cumulation Full cumulation could be considered by partners: Step-by-step approach? Bilateral approach? Other? General provision (to be included in Article 3)? Combined with other relaxations? 3. Relaxations

Conclusion Revision exercise should strike the right balance between: List rules ToleranceCumulation Rules of origin

Unit B3 – PANEUROMED – Origin of goods European Commission DG Taxation and Customs Union index_en.htmhttp://ec.europa.eu/taxation_customs/customs/customs_duties/rules_origin/preferential/ index_en.htm